It is much too soon for Obamacare proponents to say that the death spiral prediction is wrong. In fact, some states are signaling it’s started already.
Even if King v Burwell case fails at the U.S. Supreme Court next month, the future for the Obamacare exchanges is still far from assured. Even if people on the 37 federal exchanges get to keep their subsidies, chances are they will eventually be caught in the vortex of the “death spiral.”
A death spiral occurs when not enough young and healthy people sign up for health insurance. Thanks to Obamacare’s design, a death spiral is inevitable. Here’s why.
Obamacare’s community rating results in insurance prices that are higher for younger people than they would be in a free market, and its guaranteed issue allows people to sign up for insurance even if they get sick, so young and healthy people have ample incentive to forgo insurance.
This leaves the insurance “risk pool” older and sicker and, hence, more costly to insure. Premiums will have to rise to cover those costs, leading some of the younger and healthier people who did initially sign up to then drop out. The risk pool then becomes even older and sicker, premiums rise again, and the process repeats.